What a fool believes [Part 1]

 ...a wise man has power to reason away - Michael McDonald (What a fool believes)

There's an awful lot of foolishness passing as wisdom nowadays. I can't say I've been immune to being fooled, either, but I've managed to spot a few examples:

Foolish Politics 

 

The Fool's Inflation Remedy

Inflation is raising prices. The conventional (Monetarist) narrative says inflation always stems from the central bank issuing too much currency. Why it could never be a shortage of goods! Who could ever believe the COVID supply shocks and corporations colluding to raise prices (and profits) were behind inflation! Pay no attention to the man behind the curtain! 

As one commentator says, "Monetary policy is ineffective at containing supply-side driven inflation (unless you want to put the economy into a severe recession and even then inflation will persist ... see 1970s)."

Economic orthodoxy says the preferred inflation remedy is to have our central bank, the Federal Reserve, raise interest rates. There are actually people who believe the Federal Reserve doesn't control interest rates, and needs to borrow the dollars it makes, literally without limit. 

And no, raising interest rates won't open the Strait of Hormuz, or reshore all that industry the US has offshored since the Reagan administration. In fact, it will add money to the accounts of those already rich enough to own government bonds, but that's the remedy proposed. 

Bond yields are "welfare for rich people," says Warren Mosler. From the above linked article: "Japan has engaged in massive amounts of what is commonly called money printing for decades, yet remained stuck in borderline deflation."

China's economic success is based on de-financializing its economy, and instead of pursuing symbols of wealth (dollars, yuan, stocks, bonds, etc.), pursuing actual wealth - human capital and expertise, manufacturing capacity, scientific and engineering innovation, agricultural production, etc.

Note the bond markets' panic for all but China:

From Xwitter:

Eduardo Garzón

@edugaresp

(Translated from Spanish)
I challenge any economist to explain to me why the interest rate on China's public debt keeps falling despite the fact that its public debt volume keeps rising. Spoiler: they're not going to be able to, unless they use the postulates of Modern Monetary Theory.

 

Also: 

Eduardo Garzón

@edugaresp

·

9h

Translated from Spanish

I challenge any economist to explain to me why Japan has been creating money hand over fist for decades while inflation hasn't even flinched. Spoiler: they're not going to be able to, unless they resort to post-Keynesian or Marxist postulates. 

 Says economic historian Michael Hudson: "U.S. firms in recent years have spent 92% of their cash flow (overall profits) on stock buybacks and dividend payouts aimed at increasing the price of their common stock. That leaves only 8% of their returns to be reinvested in building new factories and employing more labor to expand their production. The effect of financializing Western industry has thus been to cannibalize it to make purely financial gains."

Here's Mosler's advice about the public policy needed to de-financialize an economy (Australia's). Hint: it's not raising rates. Higher bond yields actually put more money into the economy, causing more demand-led inflation!